Photo: Jeremy Newton, Jonathan Sturges, Spencer Greenberg and Alexander Fleiss of Rebellion Research. Source: Michael Rubenstein/Redux
Perception
and Individual
Decision Making
6
Indecision may or may not
be my problem.
—Jimmy Buffett
165
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into which AI makes them. Says an observer of one complex system—airline
piloting, “When the person has no role in the task, there’s a much greater risk of
complacency.”
Sources: A. Shell, “Wall Street Traders Mine Tweets to Gain a Trading Edge,” USA Today (May 4,
2011), downloaded May 23, 2011, from www.usatoday.com/money/; “Soon, Your Computer Will
Have Emotions Like You,” The Economic Times (April 20, 2011), downloaded May 23, 2011, from
http://articles.economictimes.indiatimes.com; S. Patterson, “Letting the Machines Decide,” The
Wall Street Journal (July 14, 2010), p. C1; and C. Negroni, “As Attention Wanders, Second Thoughts
About the Autopilot,” The New York Times (May 18, 2010), pp. B1, B5.
T
he preceding example illustrates some of the issues that arise when people
look for techniques to improve their decision making. One reason some
like computerized decision making is that human decision makers can be
incorrect or biased in many ways. This chapter will review some of these biases
in human decision making, but it also explores how human decision makers
can outperform machines, especially in the area of creativity. The Case Incident 1
(at the end of the chapter) considers computerized decision making further.
In the following Self-Assessment Library, consider one perception—that of
appropriate gender roles.
S A
L
SELF-ASSESSMENT LIBRARY
What Are My Gender Role Perceptions?
In the Self-Assessment Library (available on CD or online), take assessment IV.C.2
(What Are My Gender Role Perceptions?) and answer the following questions.
1. Did you score as high as you thought you would?
2. Do you think a problem with measures like this is that people aren’t honest
in responding?
3. If others, such as friends, classmates, and family members, rated you, would
they rate you differently? Why or why not?
4. Research has shown that people’s gender role perceptions are becoming less
traditional over time. Why do you suppose this is so?
What Is Perception?
1
Define perception and
explain the factors that
influence it.
Perception is a process by which individuals organize and interpret their
sensory impressions in order to give meaning to their environment. However,
what we perceive can be substantially different from objective reality. For
example, all employees in a firm may view it as a great place to work—favorable
working conditions, interesting job assignments, good pay, excellent benefits,
understanding and responsible management—but, as most of us know, it’s very
unusual to find such agreement.
Why is perception important in the study of OB? Simply because people’s
behavior is based on their perception of what reality is, not on reality itself. The
world as it is perceived is the world that is behaviorally important.
What Is Perception?
167
Factors That Influence Perception
How do we explain the fact that individuals may look at the same thing yet
perceive it differently? A number of factors operate to shape and sometimes
distort perception. These factors can reside in the perceiver; in the object, or
target, being perceived; or in the context of the situation in which the perception
is made (see Exhibit 6-1).
When you look at a target and attempt to interpret what you see, your
interpretation is heavily influenced by your personal characteristics—your attitudes, personality, motives, interests, past experiences, and expectations. For
instance, if you expect police officers to be authoritative or young people to be
lazy, you may perceive them as such, regardless of their actual traits.
Characteristics of the target also affect what we perceive. Loud people are more
likely to be noticed in a group than quiet ones. So, too, are extremely attractive or
unattractive individuals. Because we don’t look at targets in isolation, the relationship of a target to its background also influences perception, as does our tendency
to group close things and similar things together. We often perceive women, men,
Whites, African Americans, Asians, or members of any other group that has clearly
distinguishable characteristics as alike in other, unrelated ways as well.
Context matters too. The time at which we see an object or event can influence our attention, as can location, light, heat, or any number of situational
factors. At a nightclub on Saturday night, you may not notice a young guest
“dressed to the nines.” Yet that same person so attired for your Monday morning management class would certainly catch your attention (and that of the
rest of the class). Neither the perceiver nor the target has changed between
Saturday night and Monday morning, but the situation is different.
Exhibit 6-1
Factors That Influence Perception
Factors in the perceiver
• Attitudes
• Motives
• Interests
• Experience
• Expectations
Factors in the situation
• Time
• Work setting
• Social setting
Perception
Factors in the target
• Novelty
• Motion
• Sounds
• Size
• Background
• Proximity
• Similarity
perception A process by which
individuals organize and interpret their
sensory impressions in order to give
meaning to their environment.
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Person Perception: Making Judgments About Others
Now we turn to the application of perception concepts most relevant to
OB—person perception, or the perceptions people form about each other.
Attribution Theory
2
Explain attribution theory
and list the three determinants of attribution.
Nonliving objects such as desks, machines, and buildings are subject to the laws
of nature, but they have no beliefs, motives, or intentions. People do. That’s why
when we observe people, we attempt to explain why they behave in certain ways.
Our perception and judgment of a person’s actions, therefore, will be significantly
influenced by the assumptions we make about that person’s internal state.
Attribution theory tries to explain the ways in which we judge people
differently, depending on the meaning we attribute to a given behavior.1 It
suggests that when we observe an individual’s behavior, we attempt to determine whether it was internally or externally caused. That determination, however, depends largely on three factors: (1) distinctiveness, (2) consensus, and
(3) consistency. First, let’s clarify the differences between internal and external
causation, and then we’ll elaborate on each of the three determining factors.
Internally caused behaviors are those we believe to be under the personal
control of the individual. Externally caused behavior is what we imagine the situation forced the individual to do. If one of your employees is late for work, you
might attribute that to his partying into the wee hours and then oversleeping.
This is an internal attribution. But if you attribute lateness to an automobile
accident that tied up traffic, you are making an external attribution.
Now let’s discuss the three determining factors. Distinctiveness refers to
whether an individual displays different behaviors in different situations. Is the
employee who arrives late today also one who regularly “blows off” commitments? What we want to know is whether this behavior is unusual. If it is, we
are likely to give it an external attribution. If it’s not, we will probably judge the
behavior to be internal.
If everyone who faces a similar situation responds in the same way, we can
say the behavior shows consensus. The behavior of our tardy employee meets this
criterion if all employees who took the same route were also late. From an attribution perspective, if consensus is high, you would probably give an external
attribution to the employee’s tardiness, whereas if other employees who took
the same route made it to work on time, you would attribute his lateness to an
internal cause.
Finally, an observer looks for consistency in a person’s actions. Does the
person respond the same way over time? Coming in 10 minutes late for work
is not perceived in the same way for an employee who hasn’t been late for
several months as it is for an employee who is late two or three times a week.
The more consistent the behavior, the more we are inclined to attribute it to
internal causes.
Exhibit 6-2 summarizes the key elements in attribution theory. It tells us,
for instance, that if an employee, Kim Randolph, generally performs at about
the same level on related tasks as she does on her current task (low distinctiveness), other employees frequently perform differently—better or worse—
than Kim on that task (low consensus), and Kim’s performance on this current
task is consistent over time (high consistency), anyone judging Kim’s work
will likely hold her primarily responsible for her task performance (internal
attribution).
Person Perception: Making Judgments About Others
Exhibit 6-2
169
Attribution Theory
Observation
Attribution
of cause
Interpretation
High
Distinctiveness
Low
High
Individual behavior
Consensus
Low
High
Consistency
Low
External
Internal
External
Internal
Internal
External
One of the most interesting findings from attribution theory research is that
errors or biases distort attributions. When we make judgments about the behavior of other people, we tend to underestimate the influence of external factors
and overestimate the influence of internal or personal factors.2 This fundamental
attribution error can explain why a sales manager is prone to attribute the poor
performance of her sales agents to laziness rather than to the innovative product line introduced by a competitor. Individuals and organizations also tend
to attribute their own successes to internal factors such as ability or effort, while
blaming failure on external factors such as bad luck or unproductive co-workers.
People also tend to attribute ambiguous information as relatively flattering and
accept positive feedback while rejecting negative feedback. This is the self-serving
bias.3 A U.S. News & World Report study showed its power. Researchers asked one
group of people “If someone sues you and you win the case, should he pay your
legal costs?” Eighty-five percent responded “yes.” Another group was asked “If
you sue someone and lose the case, should you pay his costs?” Only 44 percent
answered “yes.”4
The evidence on cultural differences in perception is mixed, but most suggest there are differences across cultures in the attributions people make.5
One study found Korean managers less likely to use the self-serving bias—they
tended to accept responsibility for group failure “because I was not a capable
leader” instead of attributing failure to group members.6 On the other hand,
Asian managers are more likely to blame institutions or whole organizations,
whereas Western observers believe individual managers should get blame or
praise.7 That probably explains why U.S. newspapers prominently report the
names of individual executives when firms do poorly, whereas Asian media
cover how the firm as a whole has failed. This tendency to make group-based
attributions also explains why individuals from Asian cultures are more likely to
make group-based stereotypes.8 Attribution theory was developed largely based
attribution theory An attempt to
fundamental attribution error The
determine whether an individual’s
behavior is internally or externally
caused.
tendency to underestimate the
influence of external factors and
overestimate the influence of internal
factors when making judgments about
the behavior of others.
self-serving bias The tendency for
individuals to attribute their own
successes to internal factors and put
the blame for failures on external
factors.
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on experiments with U.S. and Western European workers. But these studies
suggest caution in making attribution theory predictions in non-Western
societies, especially in countries with strong collectivist traditions.
Differences in attribution tendencies don’t mean the basic concepts of
attribution and blame completely differ across cultures, though. Self-serving
biases may be less common in East Asian cultures, but evidence suggests they
still operate across cultures.9 Recent studies indicate Chinese managers assess
blame for mistakes using the same distinctiveness, consensus, and consistency
cues Western managers use.10 They also become angry and punish those
deemed responsible for failure, a reaction shown in many studies of Western
managers. This means the basic process of attribution applies across cultures,
but that it takes more evidence for Asian managers to conclude someone else
should be blamed.
Common Shortcuts in Judging Others
3
Identify the shortcuts
individuals use in making
judgments about others.
The shortcuts we use in judging others are frequently valuable: they allow us to
make accurate perceptions rapidly and provide valid data for making predictions. However, they are not foolproof. They can and do get us into trouble
when they result in significant distortions.
Selective Perception Any characteristic that makes a person, an object, or an
event stand out will increase the probability we will perceive it. Why? Because it
is impossible for us to assimilate everything we see; we can take in only certain
stimuli. This explains why you’re more likely to notice cars like your own, or why a
boss may reprimand some people and not others doing the same thing. Because
we can’t observe everything going on about us, we engage in selective perception.
A classic example shows how vested interests can significantly influence which
problems we see.
Dearborn and Simon asked 23 business executives (6 in sales, 5 in production,
4 in accounting, and 8 in miscellaneous functions) to read a comprehensive case
describing the organization and activities of a steel company.11 Each manager
was asked to write down the most important problem in the case. Eighty-three
percent of the sales executives rated sales important; only 29 percent of the others did so. The researchers concluded that participants perceived as important
the aspects of a situation specifically related to their own unit’s activities and
goals. A group’s perception of organizational activities is selectively altered to
align with the vested interests the group represents.
Because we cannot assimilate all that we observe, we take in bits and pieces.
But we don’t choose randomly; rather, we select according to our interests, background, experience, and attitudes. Selective perception allows us to speed-read
others, but not without the risk of drawing an inaccurate picture. Seeing what we
want to see, we can draw unwarranted conclusions from an ambiguous situation.
We find another example of selective perception in financial analysis. From
2007 to 2009, the U.S. stock market lost roughly half its value. Yet during that
time, analysts’ sell ratings (typically, analysts rate a company’s stock with three
recommendations: buy, sell, or hold) actually decreased slightly. Although there
are several reasons analysts are reluctant to put sell ratings on stocks, one is
selective perception. When prices are going down, analysts often attend to the
past (saying the stock is a bargain relative to its prior price), rather than the
future (the downward trend may well continue). As one money manager noted,
“Each time the market went down was a new opportunity to buy the stock even
cheaper.”12 That much is true, of course, but it shows the dangers of selective
perception: by looking only at the past price, analysts were relying on a false reference point and failing to recognize that what has fallen can fall further still.
Person Perception: Making Judgments About Others
171
glOBalization!
Chinese Time, North American Time
W
e realize just how much we
take our perceptions of the
world for granted when we
try to see through the eyes of someone who grew up in a culture totally
different from our own.
For instance, people see the passage of time quite differently in different
cultures. Some cultures tend to focus
more on the past, others on the future.
Li-Jun Ji and colleagues investigated
how Chinese perceive events relative
to Canadians’ perceptions. Participants
read a description of a theft, along with
descriptions of events that occurred in
the distant past, recent past, or present.
When attempting to solve the case,
Chinese participants were more likely
to rely on events from the distant past
and recent past, whereas Canadians
were more attentive to recent events.
Even the way we visualize the passage of time differs across cultures.
Lera Boroditsky, Orly Fuhrman, and
Kelly McCormick from Stanford
University examined how American
English speakers and Mandarin
(Chinese) speakers differed in their
perception of time. Because English
uses phrases like “looking forward
to” events or “putting the past behind
us,” English speakers tend to think
about time as a horizontal timeline.
Mandarin however uses words like
shàng (up) and xià (down) to refer to
time, so events accumulate in a stack.
Could this difference in language structure explain why Chinese speakers pay
more attention to history when thinking about events? Do Chinese think
more about events “piling up” on top
of one another (making them more
relevant), whereas North Americans
think about events moving away in
time so that what is in the past is over
and done? Further research will have
to examine whether this is the case,
but it remains an interesting possibility.
Sources: L. Ji, Z. Zhang, and D. Messervey,
“Looking Into the Past: Cultural Differences
in Perception and Representation of
Past Information,” Journal of Personality
and Social Psychology 96, no. 4 (2009),
pp. 761–769; L. Boroditsky, O. Fuhrman,
and K. McCormick, “Do English and
Mandarin Speakers Think about Time
Differently?” Cognition 118, no. 1 (2011),
pp. 123–129; and A. J. Shipp, J. R. Edwards,
and L. S. Lambert, “Conceptualization and
Measurement of Temporal Focus: The
Subjective Experience of Past, Present,
and Future,” Organizational Behavior and
Human Decision Processes 110, no. 1
(2009), pp. 1–22.
Halo Effect When we draw a general impression about an individual on the
basis of a single characteristic, such as intelligence, sociability, or appearance, a
halo effect is operating.13 If you’re a critic of President Obama, try listing 10 things
you admire about him. If you’re an admirer, try listing 10 things you dislike about
him. No matter which group describes you, odds are you won’t find this an easy
exercise! That’s the halo effect: our general views contaminate our specific ones.
The reality of the halo effect was confirmed in a classic study in which subjects were given a list of traits such as intelligent, skillful, practical, industrious,
determined, and warm and asked to evaluate the person to whom those traits
applied.14 Subjects judged the person to be wise, humorous, popular, and imaginative. When the same list was modified to include “cold” instead of “warm,” a
completely different picture emerged. Clearly, the subjects were allowing a single trait to influence their overall impression of the person they were judging.
Contrast Effects An old adage among entertainers is “Never follow an act that
has kids or animals in it.” Why? Audiences love children and animals so much
that you’ll look bad in comparison. This example demonstrates how a contrast
effect can distort perceptions. We don’t evaluate a person in isolation. Our
reaction is influenced by other persons we have recently encountered.
selective perception The tendency
to selectively interpret what one
sees on the basis of one’s interests,
background, experience, and attitudes.
halo effect The tendency to draw a
general impression about an individual
on the basis of a single characteristic.
contrast effect Evaluation of a
person’s characteristics that is affected
by comparisons with other people
recently encountered who rank higher
or lower on the same characteristics.
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In a series of job interviews, for instance, interviewers can make distortions
in any given candidate’s evaluation as a result of his or her place in the interview schedule. A candidate is likely to receive a more favorable evaluation if
preceded by mediocre applicants and a less favorable evaluation if preceded by
strong applicants.
These young women are taking
part in a running test for employment in a police force in Peshawar,
Pakistan. But women in America
and European, Eastern European,
Asian, and Latin American countries
report that gender stereotyping
makes it difficult for them to enter
the profession because it is largely
regarded as a job strictly for men.
Even in countries like the United
States where the law requires hiring police officers without regard
to gender, the stereotypical view
of women inaccurately generalizes
them as lacking the mental, physical, and emotional fitness required
to perform police work. But women
who want to do police work contend that they satisfy the fitness
requirements and even bring special
qualities to the job such as compassion and good communication skills.
Source: Pakistan Press International Photo/Newscom
Stereotyping When we judge someone on the basis of our perception
of the group to which he or she belongs, we are using the shortcut called
stereotyping.15
We rely on generalizations every day because they help us make decisions
quickly; they are a means of simplifying a complex world. It’s less difficult to
deal with an unmanageable number of stimuli if we use heuristics or stereotypes. For example, it does make sense to assume that Tre, the new employee
from accounting, is going to know something about budgeting, or that Allie
from finance will be able to help you figure out a forecasting problem. The
problem occurs, of course, when we generalize inaccurately or too much. In
organizations, we frequently hear comments that represent stereotypes based
on gender, age, race, religion, ethnicity, and even weight (see Chapter 2):16
“Men aren’t interested in child care,” “Older workers can’t learn new skills,”
“Asian immigrants are hardworking and conscientious.” A growing body of research suggests stereotypes operate emotionally and often below the level of
conscious awareness, making them particularly hard to challenge and change.17
Stereotypes can be deeply ingrained and powerful enough to influence
life-and-death decisions. One study, controlling for a wide array of factors
(such as aggravating or mitigating circumstances), showed that the degree to
which black defendants in murder trials looked “stereotypically black” essentially doubled their odds of receiving a death sentence if convicted.18 Another
experimental study found that students who read scenarios describing leaders
tended to assign higher scores for leadership potential and effective leadership to Whites than to minorities even though the content of the scenarios was
equivalent, supporting the idea of a stereotype of Whites as better leaders.19
Person Perception: Making Judgments About Others
173
One problem of stereotypes is that they are widespread and often useful
generalizations, though they may not contain a shred of truth when applied to a
particular person or situation. So we constantly have to check ourselves to make
sure we’re not unfairly or inaccurately applying a stereotype in our evaluations
and decisions. Stereotypes are an example of the warning “The more useful,
the more danger from misuse.”
Specific Applications of Shortcuts in Organizations
People in organizations are always judging each other. Managers must appraise
their employees’ performances. We evaluate how much effort our co-workers are
putting into their jobs. Team members immediately “size up” a new person. In
many cases, our judgments have important consequences for the organization.
Let’s look at the most obvious applications.
Employment Interview Few people are hired without an interview. But
interviewers make perceptual judgments that are often inaccurate20 and draw
early impressions that quickly become entrenched. Research shows we form
impressions of others within a tenth of a second, based on our first glance.21 If
these first impressions are negative, they tend to be more heavily weighted in
the interview than if that same information came out later.22 Most interviewers’
decisions change very little after the first 4 or 5 minutes of an interview. As a
result, information elicited early in the interview carries greater weight than
does information elicited later, and a “good applicant” is probably characterized more by the absence of unfavorable characteristics than by the presence of
favorable ones.
Performance Expectations People attempt to validate their perceptions of
reality even when these are faulty.23 The terms self-fulfilling prophecy and
Pygmalion effect describe how an individual’s behavior is determined by others’
expectations. If a manager expects big things from her people, they’re not likely
to let her down. Similarly, if she expects only minimal performance, they’ll likely
meet those low expectations. Expectations become reality. The self-fulfilling
prophecy has been found to affect the performance of students, soldiers, and
even accountants.24
Performance Evaluation We’ll discuss performance evaluations more fully in
Chapter 17, but note for now that they very much depend on the perceptual
process.25 An employee’s future is closely tied to the appraisal—promotion,
pay raises, and continuation of employment are among the most obvious
outcomes. Although the appraisal can be objective (for example, a sales-person
is appraised on how many dollars of sales he generates in his territory), many
jobs are evaluated in subjective terms. Subjective evaluations, though often
necessary, are problematic because all the errors we’ve discussed thus far—
selective perception, contrast effects, halo effects, and so on—affect them.
Ironically, sometimes performance ratings say as much about the evaluator as
they do about the employee!
stereotyping Judging someone on the
basis of one’s perception of the group
to which that person belongs.
self-fulfilling prophecy A situation in
which a person inaccurately perceives
a second person, and the resulting
expectations cause the second person
to behave in ways consistent with the
original perception.
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The Link Between Perception and Individual Decision Making
Explain the link between
perception and decision
making.
MyManagementLab
For an interactive application of this
topic, check out this chapter’s
simulation activity at
www.mymanagementlab.com.
Delta Airlines management made a
decision in reaction to the problem
of negative publicity resulting from
a growing number of customer
complaints about poor service. To
improve service, Delta reinstated
the personal assistance of its elite
Red Coat airport agents that it
started in the 1960s but eliminated
in 2005 due to budget cuts. The
primary mission of the Red Coats,
such as Charmaine Gordon shown
here helping customers at Kennedy
International Airport in New York,
is to fix customer problems. Today,
Delta has about 800 Red Coats who
walk around airports and use handheld devices to give one-on-one,
on-the-spot help to customers in
everything ranging from printing
boarding passes to directing passengers to the right concourse.
Individuals in organizations make decisions, choices from among two or more
alternatives. Top managers determine their organization’s goals, what products
or services to offer, how best to finance operations, or where to locate a new
manufacturing plant. Middle- and lower-level managers set production schedules, select new employees, and decide how to allocate pay raises. Nonmanagerial
employees decide how much effort to put forth at work and whether to comply
with a boss’s request. Organizations have begun empowering their nonmanagerial employees with decision-making authority historically reserved for managers
alone. Individual decision making is thus an important part of organizational
behavior. But the way individuals make decisions and the quality of their choices
are largely influenced by their perceptions.
Decision making occurs as a reaction to a problem.26 That is, a discrepancy
exists between the current state of affairs and some desired state, requiring
us to consider alternative courses of action. If your car breaks down and you
rely on it to get to work, you have a problem that requires a decision on your
part. Unfortunately, most problems don’t come neatly labeled “problem.” One
person’s problem is another person’s satisfactory state of affairs. One manager may
view her division’s 2 percent decline in quarterly sales to be a serious problem requiring immediate action on her part. In contrast, her counterpart in
another division, who also had a 2 percent sales decrease, might consider that
quite acceptable. So awareness that a problem exists and that a decision might
or might not be needed is a perceptual issue.
Every decision requires us to interpret and evaluate information. We
typically receive data from multiple sources and need to screen, process, and
interpret them. Which data are relevant to the decision, and which are not?
Our perceptions will answer that question. We also need to develop alternatives and evaluate their strengths and weaknesses. Again, our perceptual
Source: Jessica Ebelhar / The New York Times/ Redux Pictures
4
Decision Making in Organizations
175
process will affect the final outcome. Finally, throughout the entire decisionmaking process, perceptual distortions often surface that can bias analysis and
conclusions.
Decision Making in Organizations
5
Apply the rational model
of decision making and
contrast it with bounded
rationality and intuition.
Business schools generally train students to follow rational decision-making
models. While models have considerable merit, they don’t always describe how
people actually make decisions. This is where OB enters the picture: to improve
the way we make decisions in organizations, we must understand the decisionmaking errors people commit (in addition to the perception errors we’ve
discussed). Next we describe these errors, beginning with a brief overview of
the rational decision-making model.
The Rational Model, Bounded Rationality, and Intuition
Rational Decision Making We often think the best decision maker is rational
and makes consistent, value-maximizing choices within specified constraints.27
These decisions follow a six-step rational decision-making model.28 The six steps
are listed in Exhibit 6-3.
The rational decision-making model relies on a number of assumptions,
including that the decision maker has complete information, is able to identify all the relevant options in an unbiased manner, and chooses the option
with the highest utility.29 As you might imagine, most decisions in the real
world don’t follow the rational model. People are usually content to find an
acceptable or reasonable solution to a problem rather than an optimal one.
Choices tend to be limited to the neighborhood of the problem symptom and
the current alternative. As one expert in decision making put it, “Most significant decisions are made by judgment, rather than by a defined prescriptive
model.”30 What’s more, people are remarkably unaware of making suboptimal decisions.31
Exhibit 6-3
1.
2.
3.
4.
5.
6.
Steps in the Rational Decision-Making Model
Define the problem.
Identify the decision criteria.
Allocate weights to the criteria.
Develop the alternatives.
Evaluate the alternatives.
Select the best alternative.
decisions Choices made from among
rational Characterized by making
rational decision-making model A
two or more alternatives.
problem A discrepancy between
the current state of affairs and some
desired state.
consistent, value-maximizing choices
within specified constraints.
decision-making model that describes
how individuals should behave in
order to maximize some outcome.
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Bounded Rationality Our limited information-processing capability makes it
impossible to assimilate and understand all the information necessary to optimize.32 So most people respond to a complex problem by reducing it to a level at
which they can readily understand it. Also many problems don’t have an optimal
solution because they are too complicated to fit the rational decision-making
model. So people satisfice; they seek solutions that are satisfactory and sufficient.
When you considered which college to attend, did you look at every viable
alternative? Did you carefully identify all the criteria that were important in
your decision? Did you evaluate each alternative against the criteria in order
to find the optimal college? The answers are probably “no.” Well, don’t feel
bad. Few people made their college choice this way. Instead of optimizing, you
probably satisficed.
Because the human mind cannot formulate and solve complex problems
with full rationality, we operate within the confines of bounded rationality. We
construct simplified models that extract the essential features from problems
without capturing all their complexity.33 We can then behave rationally within
the limits of the simple model.
How does bounded rationality work for the typical individual? Once we’ve
identified a problem, we begin to search for criteria and alternatives. But the
criteria are unlikely to be exhaustive. We identify choices that are easy to find
and highly visible and that usually represent familiar criteria and tried-andtrue solutions. Next, we begin reviewing them, focusing on alternatives that
differ little from the choice currently in effect until we identify one that is
“good enough”—that meets an acceptable level of performance. That ends our
search. So the solution represents a satisficing choice—the first acceptable one
we encounter—rather than an optimal one.
Satisficing is not always a bad idea—a simple process may frequently be
more sensible than the traditional rational decision-making model.34 To use the
rational model in the real world, you need to gather a great deal of information
about all the options, compute applicable weights, and then calculate values
across a huge number of criteria. All these processes can cost time, energy,
Source: Imagechina/AP Images
Top managers of Nike, Inc.
operated within the confines of
bounded rationality in making a
decision about its operations in
China. To reinforce its future development and rapid growth in China,
Nike decided to invest $99 million
to build the China Logistics Center,
a new distribution facility in Jiangsu
for the company’s footwear,
apparel, and equipment products.
With China overtaking Japan as
Nike’s second largest market after
the United States, the new distribution center is expected to reduce
product delivery times by up to
14 percent to the more than
3,000 Nike retail stores in China.
Decision Making in Organizations
177
and money. And if there are many unknown weights and preferences, the fully
rational model may not be any more accurate than a best guess. Sometimes a
fast-and-frugal process of solving problems might be your best option. Returning
to your college choice, would it really be smarter to fly around the country
to visit dozens of potential campuses, paying application fees for all these
options? Can you really even know what type of college is “best” for you when
you’re just graduating from high school, or is there a lot of unknown information about how your interests are going to develop over time? Maybe you won’t
major in the same subject you started with. It might be much smarter to find a
few colleges that match most of your preferences and then focus your attention
on differentiating between those.
Intuition Perhaps the least rational way of making decisions is intuitive decision
making, an unconscious process created from distilled experience.35 It occurs
outside conscious thought; it relies on holistic associations, or links between
disparate pieces of information; it’s fast; and it’s affectively charged, meaning it
usually engages the emotions.36
While intuition isn’t rational, it isn’t necessarily wrong. Nor does it always
contradict rational analysis; rather, the two can complement each other. But nor
is intuition superstition, or the product of some magical or paranormal sixth
sense. As one recent review noted, “Intuition is a highly complex and highly developed form of reasoning that is based on years of experience and learning.”37
For most of the twentieth century, experts believed decision makers’ use
of intuition was irrational or ineffective. That’s no longer the case.38 We now
recognize that rational analysis has been overemphasized and, in certain
instances, relying on intuition can improve decision making.39 But we can’t rely
on it too much. Because it is so unquantifiable, it’s hard to know when our
hunches are right or wrong. The key is neither to abandon nor rely solely on
intuition, but to supplement it with evidence and good judgment.
Common Biases and Errors in Decision Making
6
List and explain the
common decision
biases or errors.
Decision makers engage in bounded rationality, but they also allow systematic
biases and errors to creep into their judgments.40 To minimize effort and avoid
difficult trade-offs, people tend to rely too heavily on experience, impulses,
gut feelings, and convenient rules of thumb. These shortcuts can be helpful.
However, they can also distort rationality. Following are the most common
biases in decision making. Exhibit 6-4 provides some suggestions for how to
avoid falling into these biases and errors.
Overconfidence Bias It’s been said that “no problem in judgment and decision making is more prevalent and more potentially catastrophic than overconfidence.”41 When we’re given factual questions and asked to judge the probability
that our answers are correct, we tend to be far too optimistic. When people say
they’re 90 percent confident about the range a certain number might take, their
estimated ranges contain the correct answer only about 50 percent of the time—
and experts are no more accurate in setting up confidence intervals than are
bounded rationality A process of
making decisions by constructing
simplified models that extract the
essential features from problems
without capturing all their complexity.
intuitive decision making An
unconscious process created out of
distilled experience.
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Exhibit 6-4
Reducing Biases and Errors
Focus on Goals. Without goals, you can’t be rational, you don’t know what information you
need, you don’t know which information is relevant and which is irrelevant, you’ll find it
difficult to choose between alternatives, and you’re far more likely to experience regret
over the choices you make. Clear goals make decision making easier and help you eliminate
options that are inconsistent with your interests.
Look for Information That Disconfirms Your Beliefs. One of the most effective means for
counteracting overconfidence and the confirmation and hindsight biases is to actively look
for information that contradicts your beliefs and assumptions. When we overtly consider
various ways we could be wrong, we challenge our tendencies to think we’re smarter than
we actually are.
Don’t Try to Create Meaning out of Random Events. The educated mind has been trained
to look for cause-and-effect relationships. When something happens, we ask why. And
when we can’t find reasons, we often invent them. You have to accept that there are events
in life that are outside your control. Ask yourself if patterns can be meaningfully explained
or whether they are merely coincidence. Don’t attempt to create meaning out of
coincidence.
Increase Your Options. No matter how many options you’ve identified, your final choice can
be no better than the best of the option set you’ve selected. This argues for increasing your
decision alternatives and for using creativity in developing a wide range of diverse choices.
The more alternatives you can generate, and the more diverse those alternatives, the
greater your chance of finding an outstanding one.
Source: S. P. Robbins, Decide & Conquer: Making Winning Decisions and Taking Control of Your Life (Upper Saddle River, NJ: Financial
Times/Prentice Hall, 2004), pp. 164–168.
novices.42 When people say they’re 100 percent sure of an outcome, they tend
to be 70 to 85 percent correct.43 Here’s another interesting example. In one
random-sample national poll, 90 percent of U.S. adults said they expected to go
to heaven. But in another random-sample national poll, only 86 percent thought
Mother Teresa was in heaven. Talk about an overconfidence bias!
Individuals whose intellectual and interpersonal abilities are weakest are most
likely to overestimate their performance and ability.44 There’s also a negative
relationship between entrepreneurs’ optimism and the performance of their
new ventures: the more optimistic, the less successful.45 The tendency to be
too confident about their ideas might keep some from planning how to avoid
problems that arise.
Investor overconfidence operates in a variety of ways.46 Finance professor
Terrance Odean says “people think they know more than they do, and it costs
them.” Investors, especially novices, overestimate not just their own skill in
processing information, but also the quality of the information they’re working
with. Test your own confidence level with investments: compare the long-term
returns of your stock market picks relative to index funds. You’ll find an overall
index performs as well as, or better than, carefully hand-picked stocks. The
main reason many people resist index funds is that they think they’re better at
picking stocks than the average person, but most investors will actually do only
as well as or only slightly better than the market as a whole.
Anchoring Bias The anchoring bias is a tendency to fixate on initial information and fail to adequately adjust for subsequent information.47 It occurs
because our mind appears to give a disproportionate amount of emphasis to the
first information it receives. Anchors are widely used by people in professions
in which persuasion skills are important—advertising, management, politics,
real estate, and law. Assume two pilots—Jason and Glenda—have been laid
Decision Making in Organizations
179
off their current jobs, and after an extensive search their best offers are from
Delta Airlines. Each would earn the average annual pay of Delta’s narrow-body
jet pilots: $126,000. Jason was a pilot for Pinnacle, a regional airline where
the average annual salary is $82,000. Glenda was a pilot for FedEx, where
the average annual salary is $200,000. Which pilot is most likely to accept, or
be happiest with, Delta’s offer? Obviously Jason, because he is anchored by the
lower salary.48
Any time a negotiation takes place, so does anchoring. When a prospective
employer asks how much you made in your prior job, your answer typically anchors the employer’s offer. (Remember this when you negotiate your salary,
but set the anchor only as high as you realistically can.) Finally, the more
precise your anchor, the smaller the adjustment. Some research suggests
people think of making an adjustment after an anchor is set as rounding off
a number. If you suggest a target salary of $55,000, your boss will consider
$50,000 to $60,000 a reasonable range for negotiation, but if you mention
$55,650, your boss is more likely to consider $55,000 to $56,000 the range of
likely values.49
Confirmation Bias The rational decision-making process assumes we
objectively gather information. But we don’t. We selectively gather it. The
confirmation bias represents a specific case of selective perception: we seek
out information that reaffirms our past choices, and we discount information that contradicts them.50 We also tend to accept at face value information
that confirms our preconceived views, while we are critical and skeptical of
information that challenges them. Therefore, the information we gather is
typically biased toward supporting views we already hold. We even tend to
seek sources most likely to tell us what we want to hear, and we give too much
weight to supporting information and too little to contradictory. Interestingly,
we are most prone to the confirmation bias when we believe we have good
information and strongly believe in our opinions. Fortunately, those who feel
there is a strong need to be accurate in making a decision are less prone to
the confirmation bias.
Availability Bias More people fear flying than fear driving in a car. But if flying
on a commercial airline really were as dangerous as driving, the equivalent of
two 747s filled to capacity would crash every week, killing all aboard. Because
the media give much more attention to air accidents, we tend to overstate the
risk of flying and understate the risk of driving.
The availability bias is our tendency to base judgments on information readily available.51 Events that evoke emotions, are particularly vivid, or are more
recent tend to be more available in our memory, leading us to overestimate the
chances of unlikely events such as an airplane crash. The availability bias can
also explain why managers doing performance appraisals give more weight to
recent employee behaviors than to behaviors of 6 or 9 months earlier, or why
credit-rating agencies such as Moody’s or Standard & Poor’s may issue overly
positive ratings by relying on information presented by debt issuers, who have
an incentive to offer data favorable to their case.52
anchoring bias A tendency to fixate
confirmation bias The tendency to
availability bias The tendency for
on initial information, from which
one then fails to adequately adjust for
subsequent information.
seek out information that reaffirms
past choices and to discount
information that contradicts past
judgments.
people to base their judgments on
information that is readily available to
them.
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Escalation of Commitment Another distortion that creeps into decisions is a
tendency to escalate commitment.53 Escalation of commitment refers to staying
with a decision even when there is clear evidence it’s wrong. Consider a friend
who has been dating someone for several years. Although he admits things
aren’t going too well, he says he is still going to marry her. His justification:
“I have a lot invested in the relationship!”
Individuals escalate commitment to a failing course of action when they view
themselves as responsible for the failure.54 They “throw good money after bad”
to demonstrate their initial decision wasn’t wrong and to avoid admitting they
made a mistake.55 In fact, people who carefully gather and consider information
consistent with the rational decision-making model are more likely to engage in
escalation of commitment than those who spend less time thinking about their
choices.56 Perhaps they have invested so much time and energy in making their
decisions that they have convinced themselves they’re taking the right course of
action and don’t update their knowledge in the face of new information. Many
an organization has suffered because a manager determined to prove his or her
original decision right continued to commit resources to a lost cause.
Randomness Error Most of us like to think we have some control over our
world and our destiny. Our tendency to believe we can predict the outcome of
random events is the randomness error.
Decision making suffers when we try to create meaning in random events,
particularly when we turn imaginary patterns into superstitions.57 These can be
completely contrived (“I never make important decisions on Friday the 13th”)
or can evolve from a reinforced past pattern of behavior (Tiger Woods often
wears a red shirt during a golf tournament’s final round because he won many
junior tournaments wearing red shirts). Superstitious behavior can be debilitating when it affects daily judgments or biases major decisions.
Risk Aversion Mathematically, we should find a 50–50 flip of the coin for
$100 to be worth as much as a sure promise of $50. After all, the expected value
of the gamble over a number of trials is $50. However, nearly everyone but
committed gamblers would rather have the sure thing than a risky prospect.58
For many people, a 50–50 flip of a coin even for $200 might not be worth as
much as a sure promise of $50, even though the gamble is mathematically
worth twice as much! This tendency to prefer a sure thing over a risky outcome
is risk aversion.
Risk aversion has important implications. To offset the risks inherent in a
commission-based wage, companies pay commissioned employees considerably more than they do those on straight salaries. Risk-averse employees will
stick with the established way of doing their jobs, rather than taking a chance
on innovative or creative methods. Sticking with a strategy that has worked
in the past does minimize risk, but in the long run it will lead to stagnation.
Ambitious people with power that can be taken away (most managers) appear
to be especially risk averse, perhaps because they don’t want to lose on a gamble
everything they’ve worked so hard to achieve.59 CEOs at risk of being terminated are also exceptionally risk averse, even when a riskier investment strategy
is in their firms’ best interests.60
Because people are less likely to escalate commitment where there is a great
deal of uncertainty, the implications of risk aversion aren’t all bad.61 When a
risky investment isn’t paying off, most people would rather play it safe and cut
their losses, but if they think the outcome is a sure thing, they’ll keep escalating.
Risk preference is sometimes reversed: people prefer to take their chances when
trying to prevent a negative outcome.62 They would rather take a 50–50 gamble on
Decision Making in Organizations
181
Myth or Science?
Creative Decision Making Is a Right-Brain Activity
O
ne article of faith in creativity
research and practice is that
whereas the left brain governs analytical, rational thinking, the
right brain underlies creative thinking. However, judging from a recent
review of neuropsychology research,
this accepted wisdom is false.
Neuropsychologists study creativity
by asking people to engage in creative
thinking, which they measure in different ways. In the Remote Associates
Test, individuals indicate what word
links a series of three words (such as
Falling Actor Dust; Salt Deep Foam).
Other tests ask individuals to compose
creative stories, write captions for cartoons, or provide unique solutions to
unusual hypothetical problems. While
participants are thinking creatively, the
researchers assess their brain activity
using various techniques, including
MRI.
A recent review of 72 studies found
right brain activity was not associated
with creative thinking. The authors
conclude, “Creativity, or any alleged
stage of it, is not particularly associated with the right brain or any part
of the right brain.” Indeed, the review
showed it was difficult to isolate creative thinking in any one region of the
brain.
Another review of 45 studies
reached the same conclusion, noting
that the diverse ways in which creativity and brain activity were measured
made generalizations difficult.
These results do not discourage all
neuropsychologists. One neuroscientist, Oshin Vartanian, summed up the
literature as follows: “Initially, a lot of
people were looking for the holy grail.
They were searching for the creativity
module in the brain. Now we know it
is more complicated.”
Sources: A. Dietrich and R. Kanso, “A Review
of EEG, ERP, and Neuroimaging Studies
of Creativity and Insight,” Psychological
Bulletin 136, no. 5 (2010), pp. 822–848;
R. Ardena, R. S. Chavez, R. Grazioplene,
& R. E. Jung, “Neuroimaging Creativity:
A Psychometric View,” Behavioural Brain
Research 214, no. 2 (2010), pp. 143–156;
and A. McIlroy, “Neuroscientists Try to
Unlock the Origins of Creativity,” Globe and
Mail (January 28, 2011), downloaded May 20,
2011, from www.theglobeandmail.com/.
losing $100 than accept the certain loss of $50. Thus they will risk losing a lot of
money at trial rather than settle out of court. Trying to cover up wrongdoing instead
of admitting a mistake, despite the risk of truly catastrophic press coverage or even
jail time, is another example. Stressful situations can make these risk preferences
stronger. People will more likely engage in risk-seeking behavior for negative outcomes, and risk-averse behavior for positive outcomes, when under stress.63
Hindsight Bias The hindsight bias is the tendency to believe falsely, after
the outcome is known, that we’d have accurately predicted it.64 When we have
accurate feedback on the outcome, we seem pretty good at concluding it was
obvious.
Over the past 10 years, the home video rental industry has been collapsing
fast as online distribution outlets have eaten away at the market.65 Hollywood
Video declared bankruptcy in May 2010 and began liquidating its assets;
Blockbuster filed for bankruptcy in September 2010. Some have suggested that
if only these organizations had leveraged their brand and distribution resources
escalation of commitment An
increased commitment to a previous
decision in spite of negative
information.
randomness error The tendency of
individuals to believe that they can
predict the outcome of random events.
risk aversion The tendency to prefer
a sure gain of a moderate amount over
a riskier outcome, even if the riskier
outcome might have a higher expected
payoff.
hindsight bias The tendency to
believe falsely, after an outcome of
an event is actually known, that one
would have accurately predicted that
outcome.
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effectively and sooner to develop web-based delivery, as Netflix does, and lowcost distribution in grocery and convenience stores, which Redbox offers, they
could have been avoided failure. While that might seem obvious now, many
experts with good information failed to see these two major trends that would
upend the industry.
Of course, after the fact, it is easy to see that a combination of automated
and mail-order distribution would outperform the traditional brick-and-mortar
movie rental business. Similarly, former Merrill Lynch CEO John Thain—and
many other Wall Street executives—took blame for failing to see what now
seems obvious (that housing prices were inflated, too many risky loans were
made, and the values of many “securities” were based on fragile assumptions).
Though the criticisms may have merit, things are often all too clear in hindsight. As Malcolm Gladwell, author of Blink and The Tipping Point, writes, “What
is clear in hindsight is rarely clear before the fact.”66
The hindsight bias reduces our ability to learn from the past. It lets us think
we’re better predictors than we are and can make us falsely confident. If your
actual predictive accuracy is only 40 percent but you think it’s 90, you’re likely
to be less skeptical about your predictive skills.
When the U.S.-based global financial services firm Lehman Brothers
failed, many people blamed Richard
Fuld, the company’s chief executive,
accusing him of overconfidence,
confirmation, and anchoring biases
and a lack of knowledge about
complicated financial investment
instruments. Even as Lehman
Brothers continued to post billiondollar losses, Fuld exuded confidence that the investment bank was
sound, and he rebuffed criticism of
the bank’s failure to value its assets
accurately. Comments by former
employees and passersby blaming Fuld for the bankruptcy were
recorded on an artists’ rendering
of him placed in front of Lehman’s
offices in New York City.
Source: Louis Lanzanop/AP Images
Application: Financial Decision Making This discussion of decision making errors may have you thinking about how organizations and individuals
make financial decisions. Did decision errors influence capital markets and
even lead to crises like the financial meltdown of 2008? How are financial decisions affected by errors and biases? Experts have identified several ways this
can occur.67
One of the core problems that created the financial crisis was that large
loans were made to individuals who could not repay them, and finance companies purchased these bad debts without realizing how poor the prospects
of repayment were. Thus, overconfidence bias by both lenders and borrowers
Decision Making in Organizations
OB Poll
183
Gloomy Perceptions Return
Percent Indicating Economy Is in Recession or Depression
80
Depression
70
33%
60
50
40
30
Recession
29%
12%
33%
36%
20
26%
10
0
February, 2008
September, 2008
April, 2011
Source: Based on C. Merkle and M. Weber, “True Overconfidence—The Inability of Rational Information Processing to Account for Apparent Overconfidence”
(March 2009). Available at SSRN: http://ssrn.com/abstract⫽1373675
about the ability to pay back loans was clearly a major factor. Most studies
suggest that people are more willing to buy on credit and spend more
money when they feel confident. Although experts were no more accurate at
predicting financial outcomes than were people without knowledge or skills
in finance, they were more confident in their predictions. Unfortunately, as
confidence decreases in the face of poor economic data, businesses and consumers become more conservative in their spending. This further decreases
demand for products and services, which deepens the economic crisis in a
vicious cycle.
Overconfidence isn’t the only decision error implicated in the financial
crisis. Investors deliberately avoid negative information about investments,
an example of the confirmation bias. Lenders may have overlooked potential
problems with borrowers’ accounts when making loans, and stock traders may
have ignored information about potential problems with complex derivatives
when making purchasing decisions. Once a loan has been paid off, lenders also
selectively ignore the negative effects of debt, making them more likely to make
unwise loans in the future.
What might prevent these situations from occurring in the future? Both investors and consumers may need to more carefully consider whether their confidence level is aligned with their actual future ability to pay. It is also always
a good idea to seek information that goes against your initial inclinations, to
ensure you’re getting the whole picture. Be careful not to commit the hindsight
bias and conclude after financial crises have dissipated that it should have been
obvious problems were about to occur.
S A
L
SELF-ASSESSMENT LIBRARY
Am I A Deliberate Decision Maker?
In the Self-Assessment Library (available on CD or online), take assessment IV.A.2
(Am I a Deliberate Decision Maker?). Would it be better to be a more deliberate
decision maker? Why or why not?
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Influences on Decision Making: Individual Differences
and Organizational Constraints
We turn here to factors that influence how people make decisions and the degree to which they are susceptible to errors and biases. We discuss individual
differences and organizational constraints.
Individual Differences
7
Explain how individual
differences and organizational constraints affect
decision making.
Decision making in practice is characterized by bounded rationality, common
biases and errors, and the use of intuition. In addition, individual differences
create deviations from the rational model. In this section, we look at two such
differences: personality and gender.
Personality The little research so far conducted on personality and decision
making suggests personality does influence our decisions. Let’s look at conscientiousness and self-esteem (both discussed in Chapter 5).
Specific facets of conscientiousness—rather than the broad trait itself—
may affect escalation of commitment (above).68 Two such facets—achievement
striving and dutifulness—actually had opposite effects. Achievement-striving
people were more likely to escalate their commitment, whereas dutiful people were less likely. Why? Generally, achievement-oriented people hate to
fail, so they escalate their commitment, hoping to forestall failure. Dutiful
people, however, are more inclined to do what they see as best for the organization. Second, achievement-striving individuals appear more susceptible to
the hindsight bias, perhaps because they have a greater need to justify their
actions.69 Unfortunately, we don’t have evidence on whether dutiful people
are immune to this bias.
Finally, people with high self-esteem are strongly motivated to maintain it, so
they use the self-serving bias to preserve it. They blame others for their failures
while taking credit for successes.70
Gender Research on rumination offers insights into gender differences in decision making.71 Rumination refers to reflecting at length. In terms of decision
making, it means overthinking problems. Twenty years of study find women
spend much more time than men analyzing the past, present, and future.
They’re more likely to overanalyze problems before making a decision and to
rehash a decision once made. This can lead to more careful consideration of
problems and choices. However, it can make problems harder to solve, increase
regret over past decisions, and increase depression. Women are nearly twice as
likely as men to develop depression.72
Why women ruminate more than men is not clear. One view is that parents
encourage and reinforce the expression of sadness and anxiety more in girls
than in boys. Another theory is that women, more than men, base their selfesteem and well-being on what others think of them. A third idea is that women
are more empathetic and more affected by events in others’ lives, so they have
more to ruminate about.
By age 11, girls are ruminating more than boys. But this gender difference
seems to lessen with age. Differences are largest during young adulthood and
smallest after age 65, when both men and women ruminate the least.73
Influences on Decision Making: Individual Differences and Organizational Constraints
185
An Ethical Choice
Whose Ethical Standards to Follow?
A
s we note in the chapter, different standards identify ethical
behavior in different cultures.
Managers who work in international
contexts frequently run into complex
problems when behavior acceptable
for the home office is unacceptable in
local cultures, and vice versa.
How difficult is it to arrive at a global
policy for ethical decision making?
Consider these examples. Individuals
from countries higher in Hofstede’s dimension of power distance, like those
in Latin America, were more likely to
report that bribery was acceptable than
were individuals from lower power distance countries, like the United States
and much of Europe. An international
scandal ensued after German corporation Siemens set aside money for
bribes when working in Africa, but
company executives initially defended
the actions as consistent with business practices in those countries.
Such differences don’t mean business
ethics are “higher” or “lower” in different countries. Although U.S. executives might frown on bribery, they may
view it as ethical and necessary to
lay workers off during poor economic
times, whereas other cultures view
layoffs as a betrayal of the relationship
between workers and employers.
So how are managers to decide
which ethical standards to observe?
Is it better to act consistently with
your own culture, or adopt the ethical standards of the countries where
you operate? This question isn’t easy
to answer. Ethics experts suggest
leaders should adhere to universal values of human life and welfare as the
core of their international codes of ethics, and they note there are few cases
where values are directly in conflict
(no culture actively encourages bribery
as moral; it’s just that some societies view it as less of a problem than
others do).
Source: Based on L. J. Thompson, “The
Global Moral Compass for Business Leaders,”
Journal of Business Ethics 93, no. S1
(2010), pp. 15–32; C. Baughn, N. L. Bodie,
M. A. Buchanan, and M. B. Bixby, “Bribery
in International Business Transactions,”
Journal of Business Ethics 92, no. 1 (2010),
pp. 15–32; and T. Patel and A. Schaefer,
“Making Sense of the Diversity of Ethical
Decision Making in Business: An Illustration
of the Indian Context,” Journal of Business
Ethics 90, no. 2 (2009), pp. 171–186.
Mental Ability We know people with higher levels of mental ability are able to
process information more quickly, solve problems more accurately, and learn
faster, so you might expect them also to be less susceptible to common decision errors. However, mental ability appears to help people avoid only some of
these.74 Smart people are just as likely to fall prey to anchoring, overconfidence,
and escalation of commitment, probably because just being smart doesn’t alert
you to the possibility you’re too confident or emotionally defensive. That doesn’t
mean intelligence never matters. Once warned about decision-making errors,
more intelligent people learn more quickly to avoid them. They are also better
able to avoid logical errors like false syllogisms or incorrect interpretation of data.
Cultural Differences The rational model makes no acknowledgment of cultural
differences, nor does the bulk of OB research literature on decision making.
But Indonesians, for instance, don’t necessarily make decisions the same way
Australians do. Therefore, we need to recognize that the cultural background
of a decision maker can significantly influence the selection of problems, the
depth of analysis, the importance placed on logic and rationality, and whether
organizational decisions should be made autocratically by an individual manager or collectively in groups.75
Cultures differ in their time orientation, the importance of rationality, their
belief in the ability of people to solve problems, and their preference for collective decision making. Differences in time orientation help us understand
why managers in Egypt make decisions at a much slower and more deliberate
pace than their U.S. counterparts. While rationality is valued in North America,
that’s not true elsewhere in the world. A North American manager might make
an important decision intuitively but know it’s important to appear to proceed
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in a rational fashion because rationality is highly valued in the West. In countries such as Iran, where rationality is not as paramount as other factors, efforts
to appear rational are not necessary.
Some cultures emphasize solving problems, while others focus on accepting
situations as they are. The United States falls in the first category; Thailand and
Indonesia are examples of the second. Because problem-solving managers believe they can and should change situations to their benefit, U.S. managers might
identify a problem long before their Thai or Indonesian counterparts would
choose to recognize it as such. Decision making by Japanese managers is much
more group-oriented than in the United States. The Japanese value conformity
and cooperation. So before Japanese CEOs make an important decision, they collect a large amount of information, which they use in consensus-forming group
decisions. In short, there are probably important cultural differences in decision
making, but unfortunately not yet much research to identify them.
Organizational Constraints
Organizations can constrain decision makers, creating deviations from the rational model. For instance, managers shape their decisions to reflect the organization’s performance evaluation and reward system, to comply with its formal
regulations, and to meet organizationally imposed time constraints. Precedent
can also limit decisions.
Performance Evaluation Managers are strongly influenced by the criteria on
which they are evaluated. If a division manager believes the manufacturing
plants under his responsibility are operating best when he hears nothing negative, we shouldn’t be surprised to find his plant managers spending a good part
of their time ensuring that negative information doesn’t reach him.
Reward Systems The organization’s reward system influences decision makers by suggesting which choices have better personal payoffs. If the organization
rewards risk aversion, managers are more likely to make conservative decisions.
From the 1930s through the mid-1980s, General Motors consistently gave promotions and bonuses to managers who kept a low profile and avoided controversy. These executives became adept at dodging tough issues and passing
controversial decisions on to committees.
Formal Regulations David Gonzalez, a shift manager at a Taco Bell restaurant in San Antonio, Texas, describes constraints he faces on his job: “I’ve
got rules and regulations covering almost every decision I make—from how
to make a burrito to how often I need to clean the restrooms. My job doesn’t
come with much freedom of choice.” David’s situation is not unique. All but
the smallest organizations create rules and policies to program decisions and
get individuals to act in the intended manner. And of course, in so doing, they
limit decision choices.
System-Imposed Time Constraints Almost all important decisions come with
explicit deadlines. A report on new-product development may have to be ready
for executive committee review by the first of the month. Such conditions often
make it difficult, if not impossible, for managers to gather all the information
they might like before making a final choice.
Historical Precedents Decisions aren’t made in a vacuum; they have a context.
In fact, individual decisions are points in a stream of choice. Those made in the
What About Ethics in Decision Making?
187
Source: Newscom
Formal regulations shape employee
decisions at McDonald’s restaurants
throughout the world. McDonald’s
standardizes the behavior of
restaurant crew members such as
the employee shown here preparing the company’s specialty coffee,
McCafe Mocha. McDonald’s requires
employees to follow rules and regulations for food preparation and
service to meet the company’s high
standards of food quality and safety
and reliable and friendly service.
For example, McDonald’s requires
72 safety protocols to be conducted
every day in each restaurant as part
of a daily monitoring routine for
restaurant managers.
past are like ghosts that haunt and constrain current choices. It’s common knowledge that the largest determinant of the size of any given year’s budget is last year’s
budget.76 Choices made today are largely a result of choices made over the years.
What About Ethics in Decision Making?
8
Contrast the three ethical
decision criteria.
Ethical considerations should be an important criterion in all organizational
decision making. In this section, we present three ways to frame decisions
ethically.77
Three Ethical Decision Criteria
The first ethical yardstick is utilitarianism, which proposes making decisions
solely on the basis of their outcomes, ideally to provide the greatest good for the
greatest number. This view dominates business decision making. It is consistent
with goals such as efficiency, productivity, and high profits.
Another ethical criterion is to make decisions consistent with fundamental
liberties and privileges, as set forth in documents such as the Bill of Rights.
An emphasis on rights in decision making means respecting and protecting the
basic rights of individuals, such as the right to privacy, free speech, and due
process. This criterion protects whistle-blowers when they reveal an organization’s unethical practices to the press or government agencies, using their right
to free speech.
utilitarianism A system in which
whistle-blowers Individuals who
decisions are made to provide the
greatest good for the greatest number.
report unethical practices by their
employer to outsiders.
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A third criterion is to impose and enforce rules fairly and impartially to
ensure justice or an equitable distribution of benefits and costs. Union members
typically favor this view. It justifies paying people the same wage for a given
job regardless of performance differences and using seniority as the primary
determination in layoff decisions.
Each criterion has advantages and liabilities. A focus on utilitarianism
promotes efficiency and productivity, but it can sideline the rights of some
individuals, particularly those with minority representation. The use of rights
protects individuals from injury and is consistent with freedom and privacy, but
it can create a legalistic environment that hinders productivity and efficiency.
A focus on justice protects the interests of the underrepresented and less powerful, but it can encourage a sense of entitlement that reduces risk taking,
innovation, and productivity.
Decision makers, particularly in for-profit organizations, feel comfortable
with utilitarianism. The “best interests” of the organization and its stockholders
can justify a lot of questionable actions, such as large layoffs. But many critics
feel this perspective needs to change.78 Public concern about individual rights
and social justice suggests managers should develop ethical standards based on
nonutilitarian criteria. This presents a challenge because satisfying individual
rights and social justice creates far more ambiguities than utilitarian effects on
efficiency and profits. However, while raising prices, selling products with questionable effects on consumer health, closing down inefficient plants, laying off
large numbers of employees, and moving production overseas to cut costs can
be justified in utilitarian terms, that may no longer be the single measure by
which good decisions are judged.
Improving Creativity in Decision Making
9
Define creativity and discuss
the three-component model
of creativity.
MyManagementLab
For an interactive application of this
topic, check out this chapter’s
simulation activity at
www.mymanagementlab.com.
Although the rational decision-making model will often improve decisions, a
rational decision maker also needs creativity, the ability to produce novel and
useful ideas.79 These are different from what’s been done before but appropriate
to the problem presented.
Creativity allows the decision maker to more fully appraise and understand
the problem, including seeing problems others can’t see. L’Oréal puts its
managers through creative exercises such as cooking or making music, and the
University of Chicago requires MBA students to make short movies about their
experiences.
Creative Potential Most people have useful creative potential. But to unleash
it, they have to escape the psychological ruts many of us fall into and learn how
to think about a problem in divergent ways.
Exceptional creativity is scarce. We all know of creative geniuses in science
(Albert Einstein), art (Pablo Picasso), and business (Steve Jobs). But what
about the typical individual? Intelligent people and those who score high on
openness to experience (see Chapter 5) are more likely to be creative.80 Other
traits of creative people are independence, self-confidence, risk taking, an
internal locus of control, tolerance for ambiguity, a low need for structure, and
perseverance.81 Exposure to a variety of cultures can also improve creativity.82
So taking an international assignment, or even an international vacation, could
jump-start your creative process.
A study of the lifetime creativity of 461 men and women found fewer than
1 percent were exceptionally creative.83 But 10 percent were highly creative and
about 60 percent were somewhat creative. This reinforces that most of us have
creative potential; we just need to learn to unleash it.
What About Ethics in Decision Making?
189
Three-Component Model of Creativity What can individuals and
organizations do to stimulate employee creativity? The best answer lies in
the three-component model of creativity,84 which proposes that individual
creativity essentially requires expertise, creative thinking skills, and intrinsic
task motivation. Studies confirm that the higher the level of each, the higher
the creativity.
Expertise is the foundation for all creative work. Film writer, producer, and director Quentin Tarantino spent his youth working in a video rental store, where
he built up an encyclopedic knowledge of movies. The potential for creativity is
enhanced when individuals have abilities, knowledge, proficiencies, and similar
expertise in their field of endeavor. You wouldn’t expect someone with minimal knowledge of programming to be very creative as a software engineer.
The second component is creative-thinking skills. This encompasses personality characteristics associated with creativity, the ability to use analogies, and the
talent to see the familiar in a different light.
A meta-analysis of 102 studies found positive moods increase creativity, but
it depends on what sort of positive mood was considered.85 Moods such as
happiness that encourage interaction with the world are more conducive to
creativity than passive moods such as calm. This means the common advice
to relax and clear your mind to develop creative ideas may be misplaced. It
would be better to get in an upbeat mood and then frame your work as an
opportunity to have fun and experiment. Negative moods also don’t always
have the same effects on creativity. Passive negative moods such as sadness
doesn’t seem to have much effect, but avoidance-oriented negative moods
such as fear and anxiety decrease creativity. Feeling threatened reduces your
desire to try new activities; risk aversion increases when you’re scared. Active
negative moods, such as anger, however, do appear to enhance creativity,
especially if you are taking your task seriously.
Being around creative others can make us more inspired, especially if
we’re creatively “stuck.”86 One study found that having “weak ties” to creative
people—knowing them but not well—facilitates creativity because the people
are there as a resource if we need them but not so close as to stunt our own
independent thinking.87
Analogies allow decision makers to apply an idea from one context to another.
One of the most famous examples was Alexander Graham Bell’s observation that
it might be possible to apply the way the ear operates to his “talking box.” Bell
noticed the bones in the ear are operated by a delicate, thin membrane. He wondered why a thicker and stronger membrane shouldn’t be able to move a piece
of steel. From that analogy, the telephone was conceived. Thinking in terms of
analogies is a complex intellectual skill, which helps explain why cognitive ability
is related to creativity. Demonstrating this effect, one study found children who
got high scores on cognitive ability tests at age 13 were significantly more likely to
have made creative achievements in their professional lives 25 years later.88
Some people develop creative skills because they see problems in a new
way. They’re able to make the strange familiar and the familiar strange.89 For
instance, most of us think of hens laying eggs. But how many of us have considered that a hen is only an egg’s way of making another egg?
creativity The ability to produce novel
and useful ideas.
three-component model of
creativity The proposition that
individual creativity requires expertise,
creative thinking skills, and intrinsic
task motivation.
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Creative people often love their work, to the point of seeming obsession.
The final component in the three-component model of creativity is intrinsic
task motivation. This is the desire to work on something because it’s interesting, involving, exciting, satisfying, or personally challenging. It’s what turns creativity potential into actual creative ideas. Environmental stimulants that foster
creativity include a culture that encourages the flow of ideas; fair and constructive judgment of ideas; rewards and recognition for creative work; sufficient
financial, material, and information resources; freedom to decide what work is
to be done and how to do it; a supervisor who communicates effectively, shows
confidence in others, and supports the work group; and work group members
who support and trust each other.90
International Differences There are no global ethical standards,91 as contrasts
between Asia and the West illustrate.92 Because bribery is commonplace in
countries such as China, a Canadian working in China might face a dilemma:
should I pay a bribe to secure business if it is an accepted part of that country’s
culture? A manager of a large U.S. company operating in China once caught
an employee stealing. Following company policy, she fired him and turned him
over to the local authorities. Later, she was horrified to learn the employee had
been summarily executed.93
Although ethical standards may seem ambiguous in the West, criteria defining right and wrong are actually much clearer there than in Asia, where few issues are black and white and most are gray. Global organizations must establish
ethical principles for decision makers in countries such as India and China and
modify them to reflect cultural norms if they want to uphold high standards
and consistent practices.
S A
L
SELF-ASSESSMENT LIBRARY
How Creative Am I?
In the Self-Assessment Library (available on CD or online), take assessment I.A.5 (How
Creative Am I?).
MyManagementLab
Now that you have finished this chapter, go back to www.mymanagementlab.com to continue
practicing and applying the concepts you’ve learned.
Summary and Implications for Managers
Perception Individuals base their behavior not on the way their external
environment actually is but rather on what they see or believe it to be.
●
●
Whether a manager successfully plans and organizes the work of
employees and actually helps them to structure their work more efficiently and effectively is far less important than how employees perceive
the manager’s efforts.
Employees judge issues such as fair pay, performance appraisals, and
working conditions in very individual ways. To influence productivity, we
need to assess how workers perceive their jobs.
Summary and Implications for Managers
191
Checklists Lead to Better Decisions
POINT
W
hile life and lives sometimes turn on the basis of big
decisions, it’s often the little ones that matter more.
Our failure to follow routine, everyday protocols
makes the world a more dangerous place for ourselves, and for
others. A few examples . . .
Nearly 100,000 U.S. patients are killed every year by the failure of doctors and nurses to follow simple instructions. Really.
Hospital-acquired infections kill that many people every year,
and nearly all those deaths are entirely preventable.
Most airline crashes occur because pilots ignore the rules.
Pilot failure to follow protocols is a primary contributing factor
to the majority of incidents and accidents.
An important way of attacking these errors is to use
checklists.
Support for a checklist approach is provided by a new
book, The Checklist Manifesto. In it, the author, Harvard
Medical School surgeon Atul Gawande notes, “The volume and
complexity of what we know has exceeded our ability to deliver
its benefits correctly, safely, or reliably.” Unless, of course, we
use checklists.
Dr. Peter Pronovost, a critical care specialist at Johns
Hopkins, developed his own operating room checklist, which
included some “no brainers” such as wash your hands with
soap, put drapes over entire patient, and put sterile dressing
over incisions. Within 1 year of the checklist’s adoption at Johns
Hopkins, the post-op infection rate went from 11 percent to zero.
According to Gawande, in using checklists to improve
decisions, we should keep the following guidelines in mind:
●
●
●
●
●
Include all “stupid but critical” tasks so they’re not
overlooked.
Make it mandatory for team members to inform others when
an item on the list is completed (or not).
Empower team members to question superiors about the
checklist.
Allow for improvisation in unusual circumstances.
Thoroughly test-drive the checklist before implementing it.
Gawande notes that checklists aren’t important only for
medical decision making. Engineering, business, technology,
safety, and transportation are all industries that would benefit
from greater development and use of checklists in everyday
decision making.
As a project manager noted, “Successful checklists detail
both the sequence of necessary activities as well as the
communication checkpoints to ensure dialog among project
participants.”
COUNTERPOINT
C
hecklists work well, except when they don’t.
Checklists have a paradox that makes them of
dubious usefulness: the more complex the decision making, ostensibly the more important the checklist. But the more
complex the decision making, the less likely that a checklist
can or should be followed. Checklists can take an impractical
amount of time to follow. Driving an automobile is a routine but
complex process. Do you keep a checklist in your car for every
time you get behind the wheel?
Moreover, by their very nature, complex tasks can pose
problems that fall outside the scope of the checklist. The last
thing we need to solve unanticipated or complicated problems is rote allegiance to a checklist that is poorly suited to the
problem at hand.
Indeed, a problem with many poor decisions is that heuristics are too often followed, with little thought to whether the
assumptions behind them still hold true. If we have learned
anything from the financial crisis, it is that a model or heuristic
is only as good as its assumptions. Assume housing prices are
properly valued and likely to continue to increase, and it makes
all the sense in the world to be aggressive in making loans.
Countrywide and Fannie Mae had all sorts of rules, protocols,
and checklists they followed in making catastrophically bad
loan decisions.
As for the medical decision making, as another physician
and author, Sandeep Jauhar, noted, advocates of checklists often ignore the unintended consequences. Insurers
compensate doctors for ticking off boxes on checklists—like
prescribing antibiotics—even when there is no evidence they
are warranted. Because this protocol encourages the growth
of antibiotic-resistant bacteria, we all are endangered by this
checklist-adhering behavior.
We want to think we live in a world where decisionmaking errors can be easily solved. We can mitigate some
decisions by learning more about decision-making errors, but
one of the main learning points is that we need a healthier
respect for the degree to which we’re susceptible to errors.
Checklists provide a false sense of security and an ignorance
about when they cause more problems than they solve.
Sources: S. Jauhar, “One Thing After Another,” New York Times Book Review (January 24, 2010), p. 7; C. Arnst, “Make a List.
Check it Twice,” Bloomberg Businessweek (February 22, 2010), pp. 78–79; J. Ross, “The Checklist Manifesto and the Digital
Divide,” Forbes (July 27, 2010), downloaded on May 7, 2011, from www.forbes.com.
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●
●
Absenteeism, turnover, and job satisfaction are also reactions to an
individual’s perceptions. Dissatisfaction with working conditions and the
belief that an organization lacks promotion opportunities are judgments
based on attempts to create meaning in the job.
The employee’s conclusion that a job is good or bad is an interpretation.
Managers must spend time understanding how each individual interprets
reality and, when there is a significant difference between what someone
sees and what exists, try to eliminate the distortions.
Individual Decision Making Individuals think and reason before they act. This
is why an understanding of how people make decisions can be helpful for explaining and predicting their behavior. In some decision situations, people follow the rational decision-making model. But few important decisions are simple
or unambiguous enough for the rational model’s assumptions to apply. So we
find individuals looking for solutions that satisfice rather than optimize, injecting biases and prejudices into the decision process, and relying on intuition.
What can managers do to improve their decision making? We offer four
suggestions.
●
●
●
●
Analyze the situation. Adjust your decision-making approach to the national
culture you’re operating in and to the criteria your organization evaluates
and rewards. If you’re in a country that doesn’t value rationality, don’t feel
compelled to follow the rational decision-making model or to try to make
your decisions appear rational. Similarly, organizations differ in the importance they place on risk, the use of groups, and the like. Adjust your decision approach to ensure it’s compatible with the organization’s culture.
Second, be aware of biases. Then try to minimize their impact. Exhibit 6-4
offers some suggestions.
Third, combine rational analysis with intuition. These are not conflicting
approaches to decision making. By using both, you can actually improve
your decision-making effectiveness. As you gain managerial experience,
you should feel increasingly confident in imposing your intuitive processes on top of your rational analysis.
Finally, try to enhance your creativity. Actively look for novel solutions to
problems, attempt to see problems in new ways, and use analogies. Try to
remove work and organizational barriers that might impede your creativity.
QUESTIONS FOR REVIEW
1
6
2
7
3
8
What is perception, and what factors influence our
perception?
What is attribution theory? What are the three determinants of attribution? What are its implications for explaining
organizational behavior?
What shortcuts do people frequently use in making
judgments about others?
4
What is the link between perception and decision
making? How does one affect the other?
5
What is the rational model of decision making? How is it
different from bounded rationality and intuition?
What are some of the common decision biases or errors
that people make?
What are the influences of individual differences,
organizational constraints, and culture on decision
making?
Are unethical decisions more a function of an individual
decision maker or the decision maker’s work environment?
Explain.
9
What is creativity, and what is the three-component
model of creativity?